The AOC said on Friday it has decided to hire a Queens Counsel to investigate the drug incident and other allegations of misbehaviour within the Australian Olympic swimming team.

Magnussen and four other members of Australia's 4x100m freestyle relay team - Tommaso D'Orsogna, Cameron McEvoy, Eamon Sullivan and Matthew Targett - confessed earlier on Friday to taking the sedative Stilnox as part of a "bonding session" at a pre-Olympic camp in Manchester.

The sixth member of the squad, James Roberts, said he had never taken Stilnox in his life.

The swimmers admitted they knew Stilnox had been banned by the AOC weeks beforehand.

AOC secretary-general Craig Phillips said the five swimmers faced possible sanctions from the Olympic body, including withdrawing funding in the lead up to the 2016 Rio Olympics.

"We have in the past removed athletes from Olympic teams. We've prevented athletes from being selected on Olympic teams, because they don't measure up to our standards of behaviour," Phillips said at a press conference.

"We have a track record of that. So if we have any athlete we find in that situation, we would impose the same sort of bans.

"But I couldn't tell you right now whether that applies to anyone in this group."

The AOC could also ask for money paid under the medal-incentive scheme to be returned, meaning Magnussen could be forced to pay back $10,000 given to him for winning a silver medal at the Games.

The swimmers may also have broken an Australian team agreement.

Phillips said the AOC would await the outcome of Swimming Australia's newly formed integrity panel, who will also investigate the swimmers.

The relay team members also admitted some of them made prank calls and knocked on other team-mates' hotel room doors during the night, but denied entering any rooms.

Their admission follows the publication of an independent review of the poor swim team campaign at the Games which found "toxic incidents" including misuse of prescription drugs, bullying and hazing went unchecked in the lead up.

"As a result of the revelations this week arising from the swimming reviews, the AOC has decided to engage a Queens Counsel to investigate these incidents further," Phillips said in an earlier statement.

"We would fully expect that the athletes will give their total cooperation to any investigation we mount."